Deal maker becomes power broker

It’s rare, if not unprecedented, for an established blue chip director to jump from one major company to a competitor, rarer still for it to happen in less than a year. Former
AGL Energy
chairman
Mark Johnson
has just done it.

He made light of his move to become chairman of
Alinta Energy
– the debt-laden West Australian utility that is being reborn under private equity ownership – just six months after leaving AGL.

“One of the only benefits of being old is that you know lots of people," Johnson told the Weekend Financial Review when asked how the move came about.

One of the people Johnson knows is Ben Gray, the 38-year old former investment banker who runs the Australian arm of the US private equity giant TPG and tapped Johnson for the job months ago.

Through deals in retail, healthcare and now energy, Gray, the son of former Tasmanian premier Robin Gray, is emerging as one of the more influential players in corporate Australia.

During the week, right in the middle of fierce debates about a carbon tax and soaring energy prices, he unveiled plans for Alinta to become a serious player in the east coast energy markets by taking on companies such as Origin Energy and AGL in a battle to build its retail business from 600,000 to 1.5 million customers.

Johnson, a 22-year veteran of the AGL board and a career investment banker, was but the most high profile of the independent directors who will oversee the battle for market share. Gray also lured
Wesfarmers
directors Tony Howarth and Wayne Osborne to the board and persuaded Jeff Dimery, the man seen as the logical successor to AGL chief executive Michael Fraser, to head Alinta’s management team weeks before TPG agreed to the deal.

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Gray and his ilk buy struggling companies using a lot of debt, employ high-calibre managers with skin in the game to restructure the business and seek a profitable exit a few years later.

For the abortive $11 billion tilt at Qantas by TPG, Allco Finance Group and Macquarie Bank, the bidders had already locked in chief executive Geoff Dixon to run the company.

In TPG’s best-known investment, the dowager department store chain
Myer
was restructured under
Bernie Brookes
, who missed out on the top job at Woolworths but through his efforts is now arguably the highest-profile retailer in the country.

Corporate Australia has had unpleasant reminders of what can happen when the private equity strategy goes wrong. Clothier Colorado and the owner of the Angus & Robertson and Borders bookstores , REDGroup, have slipped into administration in the past two months.

Gray and TPG have avoided the worst of it. Myer shares have fallen 22 per cent since being floated ahead of schedule in late 2009, but for TPG investors it was a wildly successful deal, returning a $1.4 billion profit in three years.

There’s no clear exit strategy yet for Alinta but the takeover completed last month shows that TPG has more than one string to its bow. Rather than borrowing big to fund a buyout, TPG used Alinta’s $2.8 billion debt as the way in.

It began buying Alinta’s debt at a discount from banks last year and built a big enough position to be able to propose a restructure that won board support in September.

TPG has now more than halved the debt, injected fresh equity and readied the company to expand.

Alinta has a dozen generators accounting for about 5 per cent of Australia’s installed capacity, powering developments such as BHP Billiton’s massive Pilbara iron ore operations as well as homes in Western Australia and Victoria.

If Gray and his followers get their way Alinta will be much bigger and more profitable by the time they have finished.